Rwanda: Nation Faces U.S.$5 Billion Energy Sector Bill

Rwanda's national utilities' company says selling shares to the public to raise new capital to increase electricity supply is currently not an option despite high financing needs to meet national electricity roll out targets.

Rwanda targets to increase electricity production about ten folds from the current 100 plus megawatts to 1000 megawatts and to connect at least half of the households to the grid by 2017 from the current 16%.

Meeting the ambitious targets will require an estimated US$5 billion to invest in electricity development, distribution and management which remains one of the biggest challenges the government is facing to boost industry competitiveness.

The government is expected to contribute a third of the budget while the remaining investment is expected to come from the private sector which has been very slow to take up the investment opportunities in electricity generation.

While an Initial Public Offering (IPO), sale of company shares to the public for the first time, would be a means to raise new capital and meet financing needs, the Energy, Water and Sanitation Authority (EWSA) says that going public would hinder achieving of the energy sector targets and for now it is not a priority.

"Putting out shares for the public to invest in EWSA and thus making it commercial is not an option for us so far," explains Yves Muyange, Director General of EWSA, a public company that develops, distributes and manages water and electricity resources with financing from the government and donors.

Muyange says that energy and water services were bundled together with the aim to harmonise resources which would in turn speed up the achieving of government targets on access to electricity and water resources.

He says that unbundling these services which would be a prerequisite if an IPO is to be issued, would not serve the country to achieving its energy sector targets since it would lead to higher tariffs.

"We want to first of all create a situation where there is enough supply and demand in the sector in order for it to be commercial, then we can apply market laws, unbundle the sector and have them operate as viable businesses," says Muyange.

In the East African Community (EAC), some member states such as Kenya and Uganda have allowed their public utilities' companies to issue IPOs for the public to invest in them.

The Tanzania government has expressed the need to float shares of Tanzania Electric Supply Limited (Tanesco) on the Dar es Salaam Stock Exchange (DSE) although it is currently engulfed by terrible losses and the International Monetary Fund (IMF) is requesting the government to intervene in order to rescue the power company from collapsing.

Burundi and Rwanda are still developing their utilities' companies to make them viable for investors once they are off government subsidies.

Muyange says that EWSA's obligation is to ensure that the energy sector becomes viable commercially with enough electricity supply and sufficient clientele. Once these targets are met, he says, the market forces will lead to an IPO, which would even help to develop capital markets.

Currently, EWSA is not operating to make profits but it is trying to drive the government's target to increase access to electricity and water among the rural and urban populations as well as the businesses at subsidised tariffs. The company runs solely on the government and donor funds in order to make power and water accessible to the poor who constitute 45% of the population.

EWSA re-invests revenue collected from water and electricity sales to support operations.

Pursuing profits, explains Muyange, would hinder the growth of the energy sector since it would increase the cost of electricity thus preventing nearly half of Rwandans from connecting to the grid hence bringing the demand down which would harm economic growth.

He says that EWSA is working towards becoming a worthy company which would lead to a successful IPO in case the government considers it as an option to raise capital.

"We have already set up references upon which the company can establish its credit worthiness, a step that is crucial in the IPO stage," says Muyange.

Optimism, targets

High electricity tariffs and unreliable power supply continue to hamper the growth of the manufacturing industry and the services sector according to studies.

The high cost of electricity reduces the competitiveness of the locally produced products meant for the export market thus limiting the growth of the Rwandan young manufacturing industry. Limited power supply reduces the frequency and speed at which the factories would be functioning thus contributing to low output to meet market demand.

Inadequate power supply also reduces development of the rural areas which need electricity to kick-start small scale commercial activities such as carpentry, welding and retail of cold drinks such as beers, milk and juices. The consequence is that the economy remains small with few jobs and low consumption.

But the government has shown that it has arrived at the core problem and plans to tackle it in the long term have been set.

During the first phase of Economic Development and Poverty Reduction Strategy (EDPS) which started in 2008 and ended last year, energy sector development was one of the top priorities for the government and it had set ambitious targets.

According to the results of the third Integrated Household Living Conditions Survey (EICV3) released by the National Institute of Statistics of Rwanda (NISR) on February 7, 2012, during the first phase of EDPRS, access to electricity increased to 16% from 6% leaving 215,000 households connected to the national grid.

But the new targets, which aim to move access from 16% to 50% by 2017 and production from 112 megawatts to 1000 megawatts, may prove to be tough to achieve if the rate at which the investments in the energy sector grow does not increase. But EWSA remains optimistic as well as the government.

"We have so far laid the background and the foundation for us to produce enough electricity plus achieve the set level of access to electricity in the country and thus we are positive that we will reach the target without fail," says optimistic Muyange.

He says that the reason for a lower rate in the past years resulted from the company having been trying to plan and structure how best it was going to achieve its mandated obligations.

"We are now almost completing the planning session and even most infrastructural requirements have been put in place, so the next steps are going to be not only many but also faster in bringing forth tangible results that will positively change Rwanda's energy situation in a short time."

EWSA, says Muyange, is set to acquire a detailed master plan that will guide it in the next phase of execution.

Most of the targeted energy production projects, Muyange says, are in the phase of execution and others are completing the financing stage and could start generating electricity in the next two years, adding at least 309.6 megawatts to the national grid.

He says contracts for the companies to develop the Peat to Energy plans have been awarded to investors while in Methane gas, the Kivu Watt Project has completed construction of the plant and the extraction phase for the production of the first 25 megawatts is already undergoing.

"With the infrastructure for the generation of electricity from methane gas in Kivu already in place, the next phase of producing extra energy will only require the company to upgrade a few things. The biggest part of the work is already done," Muyange says.

According to the Prime Minister Dr. Pierre Damien Habumuremyi, out of the 1,000 megawatts expected by 2017, 320 megawatts will come from hydro power, 300 from methane gas, 310 from geothermal and 200 from peat energy sources.

About 76 micro-hydro plants are also under further backing the government's optimism for achieving the 2017 target.

The government has already set aside about US$27million for the exploration process of three geothermal wells that will later be drilled. But private investments in the energy sector remain overshadowed by public investment. For instance, last year, investment in the energy sector was estimated at US $165 million.

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